Intellectual Ventures Responds to Public Radio Investigation

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Intellectual Ventures, the Bellevue, WA-based patent licensing and invention firm, has responded on its blog to a recent report by the influential public radio program “This American Life” that delved into the controversy around intellectual property rights—and specifically, the accusation that IV is a massive “patent troll” that uses its trove of intellectual property to extract money rather than adding anything constructive to the world.

It’s a very thoroughly reported take on this overall story, which is not a new one to the tech community, but will definitely have legs because of its detail, cast of characters, bombastic accusations, and secretive legal arrangements.

First, there’s no question that IV is a massive “non-practicing entity” for a lot of the patents it holds. It’s not making flash memory or mobile backup software, but holds intellectual property for those kinds of products and makes money by licensing the patents to others. And quite a bit of money, too—co-founder Nathan Myhrvold has said IV’s more than 30,000 patents have brought in $2 billion in revenue, with some $700 million last year alone.

Being an “NPE” is, of course, a pretty classic definition of a patent troll. And the “This American Life” reporters do a really good job of talking to patent experts about the history of the American patent system, particularly in software, where you can often find patents that claim ownership of the most basic behaviors in the Internet age.

This point gets to the main conflict at hand: overbroad patent claims and demands for licensing money pitted against the democratic strain in coder culture that values showing your work and sharing knowledge.

Intellectual Ventures has been pretty consistent in how it responds to these kinds of allegations, saying that it’s doing something very different in the field by trying to create a more robust, efficient, liquid market for intellectual property. Where a few big tech firms and lots of patent lawyers once ruled, IV sees itself as establishing a new middleman class that can essentially move around patent rights like so many other commodities.

That’s the tone conveyed in IV’s blog response to the “This American Life” piece. Under the headline “Disruption Invites Controversy,” IV says some of the characterizations in the public radio piece veered into absurdity, and missed the theme that IV sees underlying its existence: the shift to a dramatically different market for patents.

“Many of the world’s leading technology companies are now beginning to recognize that patents are actually strategic assets that can be worth billions of dollars,” IV wrote. “This evolution in perspective is another crucial step toward an efficient market for inventions, and we are proud to have contributed to it.”

It was pretty easy to pinpoint the exact spot where IV got into real hot water with this particular report. The public radio reporters asked IV for an example of some inventor that the firm has helped, to buttress the company’s do-gooder claims. Intellectual Ventures offered up Chris Crawford, a guy who couldn’t figure out how to get paid for his valuable patents and sold them to IV.

Up to that point, the story was a fairly classic he-said she-said piece looking into a controversial, complicated issue. But the example offered up by IV wasn’t what it turned out to be: “So we went to talk to Chris Crawford. But that turned out to be harder than we thought—and it led us on a five month journey, where things did not quite fit the story Intellectual Ventures was telling,” the NPR report said.

Busted! From that point on, “This American Life” tells the fascinating tale of how the Crawford patents may not be all that unique, and were sold to a business that appears to consist solely of an empty office and some intellectual property lawsuits.

This reveals a side of its patent business that Intellectual Ventures doesn’t really talk about—the fact that, in addition to licensing patents to partner companies and occasionally suing recalcitrant ones, it sometimes sells patents to another party and takes a cut of any licensing revenue down the road. Other parties that, according to the public radio report, sound like classic patent trolls.

Why not just be up front about that? Who knows. But it doesn’t help IV rebut the claims of guys like investor Chris Sacca, who entertainingly compared IV’s licensing business to a mafia protection racket.

In the end, I thought this post by Business Insider’s Matt Rosoff really nailed a couple of elements that are at the heart of this overall story. Intellectual Ventures, he notes, didn’t create the U.S. patent system—“it’s simply taking advantage of the long-established legal fact that patents are property with monetary value, and can be traded like any other property.”

Rosoff also points out the fact that IV’s investors include the tech world’s biggest names, such as Adobe, Apple, Cisco, and Microsoft. Those companies are in court all the time in patent disputes, Rosoff notes, but have other things to do beyond amassing their own warehouses of patent assets, “so Intellectual Ventures does the work of mopping up inventions and turning them into patents. Then it turns around and licenses them to the companies who have the most to lose from patent litigation.”

So the bigger debate to have here is whether the U.S. patent system is actually working well, or just stifling innovation and enriching lawyers. And we’re clearly just at the beginning of that sprawling debate, with calls for patent reform growing louder all the time.